Have we fallen victim to ‘entitlement hysteria’?

at 02:14 PM ET, 02/17/2012

Jeffrey Sachs, citing J.D. Keinke’s Wall Street Journal op-ed today, makes the case:

I’m not ready to panic about the health care costs as of 2085. Mechanical extrapolations that assume that health care costs will rise much faster than GNP between 2011 and 2085 are utterly unconvincing. Why should healthcare costs continue to rise so far and fast when healthcare costs are already vastly over-priced now compared with what other countries pay for the same services? Why should we assume failure decade after decade to use the new information technologies to lower the costs of health-care delivery and administration?
In fact, the recent trends are mildly favorable. As J. D. Keinke of the American Enterprise Institute writes today in the Wall Street Journal, the idea of runaway health spending is a “myth” because “new data show that health spending over the past several years has been normalizing toward the rate of general inflation, rather than growing higher and higher, as had been the case almost continuously since the 1970s.”

The new data that Keinke cites comes from the Center for Medicare Services’ report last month on national health expenditures. It found that, over the past two years, health-care costs have grown at pretty much the same rate as the rest of the economy. But what’s unclear is whether that’s a long-term trend — or whether the spending slowdown is temporary, a byproduct of the recession.

Medicare’s actuary tends to side with the latter view, that the spending slowdown mostly has to do with the economic downturn, where Americans have less money to spend on their medical care. “Although medical goods and services are generally viewed as necessities, the latest recession had a dramatic effect on their utilization,” a team of researchers from Medicare’s Office of the Actuary wrote in the January edition of Health Affairs. “Growth in the use and intensity of services represented just 0.1 percentage point of the 3.7 percent growth in personal health-care spending.”

Health-care spending is indeed slowing. If the economy continues to recover, we’ll probably get a better sense of whether that’s a permanent trend or a temporary blip.

 
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